For the financial year 2012-13, the Government has put in place a regime to provide tax relief to companies by allowing tax losses to be carried back and receive a refund against tax previously paid.
This regime is applicable only to corporate tax entities which includes the following:
- Corporate Limited Partnerships
- Corporate Unit Trusts
- Public Trading Trusts
Let us use a hypothetical example of a company where it’s financial position are outlined in the table below.
|Year||Profit / (Loss)|
Taking the example above, the following observations can be made:
- For the 2012-13 year, there is an unsued tax loss. Under the transitional rules, this loss can only be carried back one year which in the example above, will apply to the 2011-12 year.
- A maximum of $1 million loss can be carried back to offset the profit in the 2011-12 year. This will create a refund for tax paid on the full $2 million profit made in 2011-12.
- If the maximum cap loss of $1 million is not fully used, any residual loss balance can be carried forward into future years.
The choice to apply this loss carry-back must be made at the time when the company lodges its tax return for the current financial year.